Will Markets Discount a Soft CPI? | Morning Express | 1/11/2023
Posted: Jan. 11, 2023, 9:14 a.m.
Fundamentals: U.S. equity benchmarks found themselves in rebound mode yesterday after Fed Chair Powell did not address monetary policy. The S&P finished at a four-week high, and price action continued to firm overnight. Undoubtedly, there are tailwinds from soft wage growth and weak Services data last Friday and relief that Fed Chair Powell did not carry the baton from Monday’s Fed speak. The focus now shifts to tomorrow’s CPI report. Given that inflation has been notably slowing will market participants front-run tomorrow’s release? There is certainly reason to believe so, but as we realized upon the CPI release last month and in October, a soft or hot report (respectively) could play out counterintuitively. Two out of the last three reports did this. Of course, the initial reaction was as expected for each, but participants are positioning with the trend, therefore discounting the overall impact of the report. Inflation surprisingly slowed on the October report, released in November, and therefore U.S. equity benchmarks roared higher and were able to broadly hold those gains. Today’s price action will be crucial because if market participants front-run tomorrow’s release, the report becomes pre-discounted and skews risks to the downside.
Do not miss our daily Midday Market Minute, from yesterday.
There is no major economic data on the calendar today. The weekly EIA Petroleum Report is due at 9:30 am CT, Thomson Reuters Consumer Sentiment is out at 10:00 am CT, and the U.S. Treasury will auction $32 billion 10-year Notes at noon CT. Tonight, we get CPI and PPI from China at 7:30 pm CT.
E-mini S&P (March) / NQ (March)
S&P, yesterday’s close: Settled at 3940.75, up 27.00
NQ, yesterday’s: Settled at 11,282.00, up 96.50
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NQ (March)
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Crude Oil (February)
Yesterday’s close: Settled at 75.12, up 0.49
Fundamentals: Crude Oil is up more than 2% on the session and sharply from yesterday’s low. The narratives broadly underpinning strength are a rebound in Chinese demand upon reopening and the White House replenishing SPR over the next couple of months, uncertainly around Russian Oil price caps (which Russian Energy Minister Novak spoke on today), and the potential of a soft-landing in the U.S. The attention will shift to weekly inventory data, and expectations are for -2.243 mb Crude, +1.186 mb Gasoline, and -0.472 mb Distillates.
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Gold (February) / Silver (March)
Gold, yesterday’s close: Settled at 1876.5, down 1.3
Silver, yesterday’s close: Settled at 23.665, down 0.206
Fundamentals: Gold continues to outpace Silver, setting a fresh local high overnight. The U.S. Dollar and Treasuries are both firm, and this poses a crosswind of sorts, encouraging Gold and Silver to pull back from overnight highs. Today is ultimately a jockeying session across asset classes ahead of tomorrow’s CPI report. There is no major data on the economic calendar, but it would not surprise us to see a consolidation higher in the U.S. Dollar ahead of tomorrow’s report. The U.S. Treasury will auction $32 billion 10-year Notes at noon CT, and this could move the Treasury complex.
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Silver (March)
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